The cinema business alone should be enough to put Reading (RDI) on Wall Street's radar, but the company's real estate is of even greater interest. Reading's owned properties, including four in Manhattan, could be worth considerably more than the company's stated book value, which doesn't reflect years of property-price appreciation.

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Jenna Bascom for Barron's

Capstone Equities, a New York real-estate concern, pegged Reading's value at between $12 and $14 a share in a May 15 letter to Reading's board of directors. That's more than double Reading's stated book value of $5.44 a share, and Friday's closing stock price of $5.07.

Capstone, a Reading shareholder, hasn't been shy about backing up its estimate with money. Earlier this year the firm offered $100 million for two of Reading's Manhattan properties -- City Cinemas 1, 2 & 3, located on Third Avenue, and the Union Square Theater -- a substantial premium to the properties' $32 million stated book value. Reading's management rejected the offer as "non-acceptable," but a sale could still be in the cards.

Reading's stock has fallen from $10 in 2007, at the height of the previous real-estate boom. The shares could return to that level on any announcement of a sale.

READING IS CLOSELY HELD, and controlled by James J. Cotter, who owns 68% of the voting B shares. Cotter combined his interest in three companies in 2001, including assets from the defunct Reading Railroad, to form Reading International.

In addition to the properties in New York, Reading owns the Royal George Theater in Chicago, 200 acres of development property in Coachella, Calif., and more than 100 acres of development property in Australia and New Zealand.

The majority of Reading's cinemas operate on long-term leases. The cinemas generate 92% of sales and 66% of operating income, with the real-estate operations accounting for the rest. In 2011 the company earned $9.9 million, or 43 cents a share, on revenue of $246 million. No sell-side analysts cover the stock, so there are no earnings estimates available.

At Reading's annual meeting on May 17, Cotter gave several reasons for rejecting Capstone's offer. The company said it wants to develop the Union Square property itself, and that the offer for Cinema 1, 2 & 3 was unfavorable.

Cotter also disclosed that Reading has received several proposals to sell the property in the range of $40 million to $45 million. The snag is that Reading wants the buyer to sell it a 25% reinvestment option on the property, which would allow the company to participate in any upside tied to future development. So far, no buyer has been willing to agree to this. Reading believes that its Third Avenue property, combined with adjoining real estate that it doesn't own, could be turned into a development worth $200 million.

In a May 22 press release, Reading reiterated its interest in doing a deal, stating: "While no assurances can be given, we are currently committed to a sale of our Third Avenue property and the redevelopment of our Union Square property."

The company changed its wording slightly in a filing made Thursday, when it released second-quarter results. "We are currently re-evaluating our options for the Cinemas 1, 2 & 3 property with an intent to potentially redevelop rather than sell the property," the document stated.

Reading's chief financial officer, Andrzej Matyczynski, told Barron's the company still is committed to the sale of Cinema 1, 2 & 3, but wants to take a few months to evaluate a redevelopment plan. "If the plan turns out to be a pie in the sky, we will pursue a sale," he said.

ROSS TAYLOR, A PORTFOLIO MANAGER at Somerset Capital Advisors, who owns Reading shares in his fund, sees plenty of opportunity in the stock. He puts a value of $10.50 to $12 a share on the company, and values the real estate conservatively at $220 million to $240 million, taking the Australian and New Zealand properties at cost and assigning a multiple of 7.5 times Ebitda, or earnings before interest, taxes, deprecation, and amortization, to the theater business, for a value of $225 million. Reading has $180 million in net debt.

Taylor believes management eventually will monetize its New York properties, and notes that the company has sold properties in New York in the past. In 2003 Reading sold the Sutton Cinema, which was redeveloped into a condominium complex called Place 57. Reading has retained a 25% interest in the project.

While redeveloping Cinema 1, 2 & 3 likely would create more value long term, a sale would be reflected more immediately in the stock price. In either case, Reading's stock could jump on an announcement. Realizing value from even one property could be all it takes for investors to see the hidden value in Reading's shares.